ERC FAQs

Why am I just hearing about the Employee Retention Credit?

There was a change to the CARES act on December 27th 2020 that now allows businesses who received a PPP loan to now qualify to receive these tax credits on wages paid out during the same time.

How do I qualify for the retroactive 2020 credit?

Businesses who paid under 100 employees (full time equivalents) in 2019

AND If during COVID the company had partial or total business closure due to federal, state or local COVID order

OR more than 50% reduced gross revenue as compared to the same quarter in 2019.

Businesses then remain eligible until the end of the first quarter where their revenues go back up over 80% compared to the same quarter in 2019.

(NOTE: New businesses who do not have 2019 revenue can compare to prior quarters.)

How do I qualify for the 2021 ERC credit?

Businesses who paid under 500 employees (full time equivalents) in 2019

AND If during COVID the company had partial or total business closure due to federal, state or local COVID order

OR more than 20% reduced gross revenue as compared to the same quarter in 2019.

(NOTE: You do compare 2021 revenue to 2019 revenue still. Think of it as comparing pre-covid numbers to during-covid numbers.)

Will this affect my PPP Loan forgiveness?

No, the PPP Loan amount is deducted from the ERC calculations and will be kept separate as required.

How is the ERC calculated retroactively for 2020?

Payroll Vault will calculate your credit based upon gross wages paid during your shut down/lost revenue times. The PPP Loan amount is deducted from your qualifying wages. The remaining wages are then capped out at $10,000 per employee. The credited amount is divided in half, making the credit amount a maximum of $5,000 per employee for 2020.

How is the ERC calculated for 2021?

Payroll Vault will calculate your credit based upon gross wages paid during your shut down/lost revenue times. The PPP Loan amount is deducted from your qualifying wages. The remaining wages are then capped out at $10,000 per employee. The credited amount is multiplied by 70% making the credit amount a maximum of $7,000 per employee PER QUARTER for 2021.

Why am I getting this credit?

This is a government refund/reward for keeping your employees on payroll during COVID down time (full/partial shutdown or lost revenue).

Will we need to pay taxes on this refund?

Yes, you will pay taxes on the refund amount on your business return as it reduces the payroll expenses paid. Make sure to talk to your accountant for details.

How will I receive the refund?

You will receive a paper check via USPS mail from the IRS.

When can I expect to receive the refund?

Unfortunately, we do not know timing. We are expecting this to take months.

When does Payroll Vault collect their fee?

After you have received the check from the IRS. We will watch your IRS activity on your behalf for progress on the process.

Is this legitimate legislation?

Yes. The copy of the IRS FAQs can be found here. A good breakdown of the explanation of the law via Forbes can be found here, here, and here.

Was the ERC extended for all quarters in 2021?

For 2021, the maximum credit is 70% of wages up to $10,000 for a maximum credit of $7,000 per employee per quarter for 1st -3rd quarters of 2021 – so a total maximum credit of $21,000 per employee for 2021.

If you were a new business or started a new trade in an existing business after February 15th 2020, you could be eligible for the Recovery Start-up provision of the ERC. The maximum credit is capped at $50,000 for 3rd and 4th quarters of 2021.

I am a new business who received both rounds of PPP loans. Can I still take advantage of the ERC?

Yes, but you will need to subtract the PPP funds that were used for wages for the same time frame you are calculating your ERC. Payroll Vault can help with these complicated calculations to make sure you can maximize your credits while staying in compliance with your PPP loan forgiveness.

I started my business in 2020, but didn’t close or have reduced revenue. What credits are available to me?

As part of the American Rescue Plan Act (ARPA), new businesses who started after February 15th 2020 are able to take advantage of the Employee Retention Credit (ERC) too. The wage and credit calculations will be the same, but the cap for the credit is $50,000 for the 3rd and 4th quarters of 2021.

I am a small business owner who was in business for a few years leading up to the pandemic. I was not closed nor did I have reduced revenue during Covid. Am I eligible for ERC?

If you started a new trade from your existing business after February 15th 2020, you could be eligible under the Recovery Start-up clause of the ARPA. The limit will be $50,000 per quarter for the 3rd and 4th quarters of 2021.